Exam

→ Competitive advantage refers to one company's ability to differentiate itself from its competitors (not just financially). Comparative advantage refers to a business's ability to produce a cheaper good compared with other businesses.

he Porter Diamond Model explains the factors that can provide a competitive advantage for one national market or economy over another

1. Factor Conditions:

   • Inputs used in the production process, such as skilled labor, infrastructure, and natural resources. Countries tend to be competitive in industries where they have abundant and specialized factors.

2. Demand Conditions:

   • This relates to the nature of domestic demand for an industry's product or service. A sophisticated and demanding local market can drive firms to innovate and improve, making them more competitive internationally.

3. Related and Supporting Industries:

   • The presence of competitive supplier industries and related industries in a country can enhance the performance of the main industry. For example, a strong auto parts industry can benefit the overall automobile industry.

4. Firm Strategy, Structure, and Rivalry:

   • This determinant focuses on how companies are created, organized, and managed, as well as the nature of domestic rivalry. Intense local competition can drive innovation and make firms more competitive on a global scale.

Supporting Factors:

1. Government:

   • While not a primary determinant, the role of government is crucial as it can influence each of the four determinants either positively or negatively through policies, regulations, and other interventions.

2. Chance:

   • These are events that are outside the control of firms but can impact the competitive position of an industry, such as major technological breakthroughs, wars, financial crises, etc.

The resource-based view focuses on firms’ strategic resources as key drivers to gain a competitive advantage

Resources: what a firm owns

Capabilities: what a firm can do

Dynamic capabilities: the capability to create new capabilities

Resources and capabilities can be generic (i.e., money) or strategic (valuable, rare, difficult to imitate and non-substitutional)

→ risk of being stuck in the middle

The Blue Ocean Strategy is a business concept that suggests companies are better off searching for ways to play in uncontested market spaces (referred to as "blue oceans") rather than competing in established industries with known competitors (referred to as "red oceans")

→ Portfolio Management Tool

A process by which national economies and countries become more integrated, creating an interconnected global economic system

1. Globalization of Markets: Merging of historically distinct and separate national markets, decreasing trade barriers

2. Globalization of Productions: Sourcing of goods and services from locations around the globe, outsourcing/ offshoring of production (labour, energy, land, capital)

1. Reduction of trade barriers

   1. Reductions of tariffs (e.g., General Agreement of Tarrifs and Trade)

   2. Foreign direct investment (FDI): category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy

2. Technological advancements

   1. Transportation: Globally dispersed production

   2. Telecommunication: Decreasing costs, global marketplace

→ In contrast to globalization: Most MNEs make 80% of revenues in their home regions

Competition

Economies of scale

Learning & Innovation

1. ncreased carbon emissions and greenhouse gases due to international trade

2. Accelerated deforestation and habitat loss

3. Pollution from industrial activities, particularly in developing countries with weaker environmental regulations

4. Overuse of natural resources due to specialization:

   • Deforestation in Brazil

   • Overfishing in coastal areas

5. The population size of all organisms has decreased 68% since 1970

6. Increase in awareness of environmental concerns

GROWTH OPPORTUNITIES

• Small domestic markets

• Maturing markets in developed countries

GLOBAL CUSTOMERS

GLOBALIZATION OF COMPETITION

• First-mover advantage

• Cross-subsidizing competitive battles

EFFICIENCY

• Economies of scale

• Low-cost input factors

ACCESS GLOBAL KNOWLEDGE AND DEVELOP NEW COMPETENCIES

• Centers of excellence

• Knowledge of value-chain activities

ROUTINELY OVERESTIMATING THE ATTRACTIVENESS OF FOREIGN MARKETS: Analytical tools overemphasize the attractiveness of international expansion and overlook the risks and costs of doing business in a new market

LIABILITY OF BEING A FOREIGNER: Additional costs that firms operating outside their home countries experience above those incurred by local firms

PARADOX OF BEING CONSISTENT: Maintaining a consistent approach across markets

Industry sensitivity analysis

ADAPTATION STRATEGY

• Tailoring one or more components of a firm’s business model to local requirements and preferences

AGGREGATION STRATEGY

• Creating regional or global efficiencies through economies of scale or scope

• Exploiting similarities between markets rather than adapting to differences

• Regionalization and semi-globalization

  • Corporate advantage

ARBITRAGE STRATEGY

• Taking advantage of differences between regions and countries (economic or otherwise), most often by locating separate parts of the supply chain in different places

The ADDING Value Scorecard is a framework to help companies assess whether a particular strategic move makes sense to add value to the business both locally and globally.

• Differences in local competitive landscapes

• Differences in local customer preferences

• Limited willingness or ability to adapt to these local demands

Aims to increase revenues and market share by customising one or more parts of a company’s business model to suit local needs

Global strategies often focus on the top of the pyramid

Catering to larger market segments in emerging markets requires more adaptation

• Importance of understanding how these customer groups define value

• Liability of foreignness

• Understanding local distribution systems

Structure:

• Country units with decision-making autonomy

Processes:

• Adequate top-down involvement from headquarters

• Bottom-up knowledge sharing

• Sufficient exchange among country units

Culture:

• Diversity in top management team to foster global mindset

• Cultural

• Administrative

• Geographic

• Economic

Examples:

• Administrative differences may push for adapting how growth targets are counted

• Cultural differences may push for adapting how sales are conducted

• High costs to manage

• Unnecessary variety

• Potential duplication efforts

• Opportunity costs: Foregone economies of scale and scope

Break down activities of the company

• Upstream: R&D, manufacturing, IT, finance, etc.

• Downstream: logistics, marketing, distribution, sales, etc.

How similar within regions, customer groups?

• e.g., distribution localized but product similar (Coca-Cola)

• e.g., marketing localized but similar IT (Unilever)

Cost advantages that a company gains as it increases its level of production

As a company produces more units of a product, the average cost per unit decreases

When producing two or more goods together results in a lower marginal cost than producing them separately

• Increasing variety of goods and services produced

• Diversification, vertical and horizontal

Different types:

• Shared process

• Shared inputs

• Co-products

• Synergy bias (e.g., managers not talking to each other because of competetiveness

• Parenting bias: Low incentice to cooperate

• Skills bias: Overestimation of skills

• Upside bias: Only look at financial synergies without looking at risks

Functional aggregation

Divisional aggregation strategy

Regional aggregation strategies

Logic of multi nationalization that seeks rapid growth through the replication of a global business model across foreign markets

• ECONOMIES OF SCALE without a concomitant increase in costs

• RAPID GROWTH, e.g., 20% growth per year in revenues/employees over three years

• REPLICATION through replicable features of a business model based on non-location bound firm-specific advantages

• GLOBAL in breadth and depth

FIRST:

• Focus on sales to establish market dominance

• First mover advantage

• Network effects

THEN:

• Adjust structure and processes

• Potentially adapt upstream activities

• Ensure to remain entrepreneurial

REPLICATION

• Process replication is essential for the speed of growth

• Product replication as enabling process replication

• Minimizing local adaptation to maintain the replicability of the global business model

FIRM-LEVEL ENTREPRENEURSHIP

• Continual identification, evaluation, and exploitation of opportunities

Replication drives maintenance of the global business model, while entrepreneurship drives adjustments of the global business model to capture new opportunities

• Replication enabling persistent rapid growth

• Entrepreneurship enabling competitiveness

“As you grow you need more structure, you need more control, and that will hamper entrepreneurship”

Ability to systematically reproduce and implement innovative processes, products or business models throughout the organization and across different markets

• Emphasizing global innovation and avoiding local innovation

• Fast feedback

• Formalized idea generation

• Assessment of replicability

1. Facilitators of rapid international grwoth

   1. Entrepreneurial teams with human, social capital

   2. Global ambition

   3. Venture capital financing

2. Facilitators of replication

   1. Digital products and processes

   2. Business model not reliant on local partners

   3. New and diverse employees can be assimilated

1. Facilitators of rapid international grwoth

   1. Entrepreneurial ecosystems (e.g., Silicon valley)

   2. Global cities (Reduces need to adapt products etc.)

   3. Rapidly growing market

   4. Size of domestic market

   5. Non-location-bound network externalties

2. Facilitators of replication

   1. Established market

   2. Market structure

• Coordinating activities and decision-making

• Sustaining competitiveness

• Managing pressures for adaptation

• Managing diverse human resources

• Overcoming limits to absorptive capacity: Evolving communication patterns

• Changing global value chains

• Managing strategic change while replicating a global business model

  • The replication dilemma

• Implementing change uniformity - strategic reorientation while keeping replicated processes

• Adjustable business models

• Maintaining subsidiary initiatives and subsidiary innovation

• Buying low in one market and selling high in another

  • Europe’s spice trade with India

  • North American fur and transatlantic trade

• Exploit differences between markets to maximize profits

  • decrease costs

  • Increase willingness-to-pay

• Not just economic arbitrage in the sense of employees but also capital, and increasing revenue, generating products to charge premium etc.

• ncreasing willingness to pay

• Country of origin effect

  • US-based fast-food

  • Luxury products (e.g., Rolex)

• Registering opportunities to disaggregate value chain activities

Exploiting geographic differences

• Reduction in transportation / communication costs

• Weather

• Time zones “covering 24 hours”

• Tapping into innovation clusters to access specific knowledge

• Develop knowledge about new business models, technologies

• Identify new ways of working

• Reduce time to market

• Attract and retain talent

• Generate new long-term revenue streams

Loners: Isolated on both ends

Connective Castaways: Lacking connections to headquarters

VI Sightseers: Lacking connections to local ecosystem

• Define a clear and adaptable goal

• Set up the appropriate structure

• Implement relevant processes

• Instill the right culture

Scope: Likely a blend of both, continuum

Key questions:

• How broad and deep does the change need to be?

• How expansive does the change need to be across each facet of the organization?

Origin: Implications for change orchestration

Key questions:

• Where are the best ideas about the desired change likely to be generated?

• How clear and predetermined is the path forward?

• How consistent should the resulting behaviors and practices be?

Rollout: Primary focus on one or the other but often combinations of both

Key questions:

• Can the change be rolled out in each unit separately or is cross-unit collaboration necessary?

• Does the organization have the resources to coordinate a rollout across multiple units?

• How will the change affect productivity during implementation and while the business unit attempts to adapt?

Timing: Opportunities for evaluation and learning vs. momentum

Key questions:

• How long will it take to roll out the change?

• Has an unexpected event triggered the need for an immediate change?

• What are the benefits of having more time to implement the change?

Throughout the process:

• Progress towards achieving buy-in

• Proximity to desired hard and soft outcomes

How:

• Existing performance measurement systems

• Employee surveys• Focus groups, interviews

Example Automobile

1. Threat of New Entrants

   1. Capital Requirements: High initial capital is required for manufacturing facilities, R&D, and distribution networks.

   2. Economies of Scale: Established companies can produce cars at a lower cost due to their scale.

   3. Brand Loyalty: Established brands like Toyota, Ford, or BMW have significant brand loyalty.

   4. Regulatory Barriers

2. Bargaining Power of Suppliers

   1. supplier Concentration: There are a few major suppliers for key components, giving them some power.

   2. Importance of Volume to Suppliers: Suppliers rely on large orders from automakers, somewhat balancing the power.

   3. Differentiation: Certain high-tech components, like advanced electronics or battery technology for electric vehicles, may be supplied by specialized firms with more bargaining power.

3. Bargaining Power of Buyers

   1. Price Sensitivity: Consumers are often price-sensitive, especially in the economy segment.

   2. Availability of Information: With the internet, consumers can easily compare models, features, and prices.

   3. Brand Loyalty: While some consumers are loyal to brands, many are willing to switch for a better deal or features.

4. Threat of Substitute Products or Services

   1. Public Transport: In densely populated areas or places with robust public transport, people might forgo buying cars.

   2. Carpooling & Ride-Sharing: Services like Uber or Lyft provide alternatives to owning a car.

   3. Bicycles and Electric Scooters: For short distances or in certain cities, these can be viable substitutes.

5. Rivalry Among Existing Competitors

   1. Number of Competitors: There are many established players in the automobile industry globally.

   2. Slow Industry Growth: In mature markets, growth is slow, leading to intense competition for market share.

   3. High Fixed Costs: The industry has high fixed costs, leading to aggressive strategies to achieve sales and improve factory utilization.

   4. Product Differentiation: Brands constantly innovate with new features, designs, and technologies to stand out.